An Introduction to Business Process Outsourcing (BPO)

What is business process outsourcing?

The business process that involves a third-party vendor to perform various different business tasks is known as business process outsourcing (BPO).

BPO which originally had been applied to manufacturing businesses has now made its way to outsourcing of services as well. Basically, It involves a third-party vendor or a contractor to carry out various parts of their business, for example, customer support, supply chain, or accounting, etc. And the third-party vendor or subcontractor could be located in another country. This is why it is also known as subcontracting or externalizing.

What is BPO used for?

All kinds of businesses, from a small setup to big companies apply this method to opt outsourcing of services as in this era, innovative and hi-tech services are readily available.

However, the two main areas are:

Back office operations: Which include payment/accounting, IT tasks, HR, and QA, etc.

Front office operations: This includes marketing, sales, customer support services, and tech support.

Commonly outsourced processes both at the front and back-office include the following:

• accounting
• administration
• customer services and call centers
• HR
• IT management and services
• manufacturing
• marketing
• research
• sales
• shipping and logistics

 

What are the Types of BPO?

It can be categorized into 3 main types depending on the company location, which are:

Onshore outsourcing: It is also known as domestic sourcing when BPO is contracted within the company’s own country regardless of the third-party vendor’s location.

Nearshore outsourcing: It is when BPO is contracted in a neighboring state or country. For example, if a U.S based company’s BPO vendor is located in Canada.

Offshore outsourcing:  When BPO is contracted in another state or country and hires a third-party vendor or hires virtual teams from another country, it is called offshore outsourcing.

How to choose a BPO provider?

BPO providers or third-party vendors who can understand and support the business objectives, as well as help them grow, be more innovative, flexible, faster, and mainly, more market competitive.

While choosing a BPO provider one should consider whether it has the following:

• Understanding of the company’s business
• Capacity to meet current and future requirements
• Data privacy
• Geographical locations

 

What are the benefits of BPO?

Listed below are some out of the many advantages of BPO:

Lower Costs: One of the biggest advantages of BPO providers is the cost reduction also making it the main reason why companies opt to outsource because they often perform business tasks that save the company big money while providing higher quality work.

Improved Flexibility: Considering today’s ever-changing market, improved flexibility is an important factor to look up to. BPO contractors can often change the dynamics of how the outsourced process is carried out considering the requirements, which ultimately increases efficiency.

Higher Quality and Better Performance: Since most of the tasks that are performed by BPO providers are core business processes hence they’re well-positioned to execute them timely with high accuracy and speed.

Expanded Coverage: Companies that need to operate 24/7 call centers can hire BPO providers from multiple geographical locations or countries making it possible at all times.

 

What are the disadvantages of BPO?

While there are many benefits of BPO, there are some disadvantages too, some of them are listed below:

Security Risks: Organizations often have to share sensitive data or regulated data with a third party or BPO providers which makes it a potential security concern for an organization.

Language Barrier: Sometimes when you hire a third-party vendor there could be some communication problems or cultural barriers which can dilute the advantages of BPO.

Unanticipated Costs: The organizations might underestimate the charges of outsourced work they hired the third party for or the miscalculation of running BPO costs, or the contractors didn’t mention the full price details in the contract which needs to be tackled later.

Overdependence on External Provider: The organization should manage the relationship with contractors to ensure that the company’s goals are met at the agreed-upon cost. If not, the organization may have to over-depend on external providers to bring the operation back in-house or even move the contract to another outsourced provider.